By Jessica Toonkel
A recent rule that requires companies that service 401(k) plans to disclose what they are charging employers for their services is leaving many small business owners with more questions than answers, according to a new study.
As of July, 401(k) plan providers, which include financial advisers, fund companies and plan record keepers, had to provide employers with documentation of all the fees they charged.
The goal of the fee disclosure, which was mandated by the U.S. Department of Labor, was to help employers better understand the fees they pay.
But a new study scheduled released this week shows that 83% of small business owners, or those with 100 employees or fewer, have more questions about what the fee disclosures mean.
Sixty-three percent of companies surveyed said they were not prepared to answer employees’ questions about 401(k) fees. Under the rules, employers were required to begin disclosing plan fees to employees in August.
Specifically, small business owners do not understand if the fees they are paying are appropriate or too high. Forty-five percent of the 500 respondents said they thought 4.00% was a reasonable fee to pay for a 401(k) plan, according to the study, which was sponsored by ShareBuilder 401k, which provides plans to more than 3,500 small employers. The average all-in 401(k) fees paid by plans with less than $1 million in assets is between 0.99% and 1.83%, according to a 2011 study conducted by Deloitte and the Investment Company Institute.
“It really surprised me that these businesses think that 4% is an acceptable amount,” said Stuart Robertson, president of ShareBuilder 401k.
While the fee disclosure statements are helpful for those employers that take the time to delve into them, they are lacking in that they do not provide any guidance on how much employers should be paying, employers said.
“There should be some kind of industry average or benchmark,” said Steve Hazelton, chief executive officer of Newton Software, a San Francisco-based software company with 12 employees. “That would really be helpful.”
But even with more information, many employers may remain in the dark about the fees they are paying because they have not read the documentation.
Only 50% of the small business owners surveyed by ShareBuilder said they recall receiving the new documents at all.